A study on IPO resource competition, government subsidies and corporate performance

WANG Kemin1 YANG Guochao1 LIU Jing1 LI Xiaoxi1

(1.School of Management, Fudan University)

【Abstract】In view of the scarce IPO resources in China, the relationship between regional marketization level and local governments’ provision of subsidies for IPO companies is examined, and the effects of government subsidy on IPO companies’ long-term performance are further investigated. It is found in this study that in order to compete for scarce IPO resources, governments in regions at a lower marketization level are more inclined to interfere in companies’ process of getting listed and usually provide more subsidies for IPO companies. The reason is that the lower the marketization level, the stronger the motive of local governments for interfering in companies’ process of getting listed, and the more significant the effects of the interference. Furthermore, in view of the negative effects of government subsidy on companies’ process of getting listed, it is found that the more government subsidies IPO companies receive, the worse the companies’ earning persistence and accounting and market performance after listing. In particular, it is found in this study that the negative effects of government subsidy are severer among low-quality companies. This study finds that government subsidies, as a tool for local governments to compete for scarce IPO resources, may distort companies’ normal production and operation and weaken their capacity of sustainable operation. Adversely affect companies’ development and cause a decrease in the companies’ long-term performance. From the practical perspective, the empirical findings of this study indicate that it is imperative to advance the reform towards an IPO registration-based system. This is because such a system can mitigate the scarcity of IPO resources, weaken the motive for local governments’ provision of subsidies for IPO companies, and reduce the negative effects of government subsidy. In addition, the research findings of this study can also assist investors in correctly assessing the effects of government subsidy on corporate value and appropriately planning their investment strategies.

【Keywords】 IPO resource competition; government subsidy; government interference; long-term corporate performance;


【Funds】 National Natural Science Foundation of China (70872023 and 71272072)

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    [1]. ① http://lianghui.people.com.cn/2015npc/n/2015/0305/c394298-26642056-4.html [^Back]

    [2]. ② http://liaoning.nen.com.cn/system/2013/07/29/010585375.shtml [^Back]

    [3]. ③ In the Interim Regulations on Listed Companies’ Bonus Shares Offering and Share Allotment, December 17, 1993, the Notice on Enforcing the Company Law to Regulate Listed Companies’ Share Allotment, September 28, 1994, the Notice on the Listed Companies’ Share Allotment in 1996, January 24, 1996 and the Notice on the Associated Questions on the Listed Companies’ Share Allotment, March 17, 1999 promulgated by the CSRC successively the Rate of Return on Common Stockholders’ Equity (ROE) are all used to measure the threshold for share allotment; while in the Stock Listing Rules of the Shanghai Stock Exchange and the Stock Listing Rules of the Shenzhen Stock Exchange enforced on January 1st 1998, net profit is both used to measure Special Treatment (ST) threshold. [^Back]

    [4]. ④ In consideration that the Accounting Standards for Enterprises No. 16 – Government Grants enforced in 2007 has amended the disclosure format of government subsidies in financial statements, in this paper, the government subsidy data up to 2006 (inclusive) and from 2007 (inclusive) are extracted from the ‘Income from subsidies’ item of the Operating Income Statement and the ‘Non-operating income’ with details attached, respectively. [^Back]

    [5]. ⑤ To compare the coefficients of different groups of government subsidy, Cready et al.’s (2010) research method was referred to in this paper so that all dummy variables of government subsidy were added in the model and zero-intercept was adopted to estimate the model. [^Back]

    [6]. ⑥⑧ The abovementioned results are not reported in this paper due to limited space. [^Back]

    [7]. ⑦ The company’s quality-based regression results of the dummy variable of government subsidy and the variable of government subsidy amount are consistent to each other. Due to limited space, only the company’s quality-based regression results of the variable of government subsidy amount are reported in this paper. [^Back]


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This Article


CN: 11-1235/F

Vol , No. 09, Pages 147-157

September 2015


Article Outline


  • 1 Introduction
  • 2 Institutional background and research hypotheses
  • 3 Empirical analysis
  • 4. Conclusion
  • Footnote